Gifts and Inheritance Tax: don't forget to write it all down!
Author: Jim Malt, 12 October 2007.
Norwich independent financial advisers, Alan Boswell & Company, have some simple tips for record-keeping when it comes to gifts and IHT planning.One of the simplest and most effective ways to reduce the inheritance tax bill that your estate will have to meet on your demise, is to give money away. Of course, this assumes that you can afford to do so. But if you don’t record your gifts properly there is a danger that the inheritance tax benefit will be lost.
We hear on the grapevine that HM Revenue and Customs (HMRC) is tightening-up its procedures for vetting lifetime gifts.
Inheritance tax planning is difficult enough without traps such as this.
When executors prepare the probate papers for the estate they have to fill in a form to state what gifts were made in the seven years preceding death. In almost all cases gifts made earlier than that will be exempt under the 'potentially exempt transfer' rules.
It is open to HMRC to check this return against your financial records, for example your bank statements, and to challenge the executors on any discrepancies.
Record of Gifts
There is an easy answer to this – keep records and place them with your will papers. There are forms available for this purpose (
ask us for a free template). But whether you use one of these or a 50p notebook from the newsagent matters not - any record is better than none.
Proper records of gifts will save your executor from time consuming and potentially expensive work (if the executor is being paid for services). More importantly it will give him or her the ammunition to answer HMRC queries. If the executor can produce a record of gifting it is highly unlikely that it will be challenged.
Forgotten Loans
One particular form of gifting that is likely to come under close scrutiny is where a loan is forgiven.
Lots of parents help out their offspring with loans, especially when the child is stepping onto the first rung of the property ladder. HMRC suspects that many of such loans just get forgotten about, and are never repaid.
Most people would accept that if this happens a gift takes place. But how many would be able to say exactly when the decision to waive the gift took place? For that is the point at which the seven year clock starts ticking. Merely stating that the loan was made many years ago will not satisfy HMRC.
Alan Boswell Insurance Brokers Limited, Alan Boswell Insurance Services Limited and Alan Boswell & Company Limited are authorised and regulated by the
Financial Services Authority.
